From a prosecutorial perspective, the Justice Department’s aggressive pursuit of Sam Bankman-Fried for financial fraud has been brutally efficient. His conviction came a year to the day after the public learned that there could be serious problems with the finances at his cryptocurrency exchange FTX, and it generated a wave of public interest and positive press for the department.
The U.S. attorney in Manhattan, Damian Williams, earned a victory lap on behalf of his office, and he took it shortly after the conviction — emerging from the courthouse late that night to deliver a warning “to every single fraudster out there who thinks that they’re untouchable.” “I promise we’ll have enough handcuffs for all of them,” he told reporters.
Some of this was standard prosecutorial tough talk — awkward, perhaps, but par for the course. These comments, however, also provide a rather misleading account of the Justice Department’s broader record on financial fraud. We may have enough handcuffs for all the fraudsters out there, but we are definitely not using them.
In fact, the Justice Department has been losing ground in the fight against financial fraud, notwithstanding the laudable pursuit of Mr. Bankman-Fried. The situation hit an undeniable low point during Donald Trump’s administration, when I worked at the Justice Department, but the overall trend has continued under President Biden and Attorney General Merrick Garland. Simply put, we are still not making nearly enough headway, even as Americans continue to suffer enormous financial losses at the hands of financial fraudsters.
Some basic figures underscore the problem. According to data compiled by Syracuse University, the overall number of white-collar prosecutions, including for financial fraud, has not significantly risen during the Biden administration. In fact, the figure is hovering near a 20-year low.
Meanwhile, the losses attributable to fraud have significantly increased. According to the F.B.I.’s most recent annual report, businesses and individuals reported $10.3 billion in losses last year to internet crime, which includes everything from phishing scams to investment frauds like the one that Mr. Bankman-Fried perpetrated. This was a 50 percent increase over the prior year’s number and, by far, the highest number since the F.B.I. began producing this report more than 20 years ago. Similarly, according to the Federal Trade Commission, consumers reported losing nearly $8.8 billion to fraud last year — a more than 30 percent increase over the prior year. A large majority of fraud victims never report the crimes to law enforcement, so the actual losses are most likely many times higher.
There is no single explanation for the increase, but one reason is that cybercriminals now use social media to identify targets for investment scams in addition to the relatively old-fashioned technology — emails and phone calls.
At the same time, some academics have concluded that criminal misconduct in financial institutions and public companies — such as accounting fraud and more run-of-the-mill securities fraud — has been on the rise. Others suggest that the rate of fraud in these companies may be steady over time but conclude that a vast majority of it is still never detected. There are potential rebuttals and caveats to apply to all of these analyses, but something is clearly wrong when they point in a similar direction.
To make matters worse, the government figures cited above concern only fraud that resulted in direct monetary losses to members of the public, but there is plenty of financial fraud perpetrated against the government, too. In September, for instance, a government watchdog report estimated that more than $100 billion in government funds may have been lost during the pandemic to fraudulently obtained unemployment benefits. Much of it appears to have gone to organized criminal syndicates operating abroad while the Trump administration largely turned a blind eye to this foreign intrusion.
Under the Biden administration, Mr. Garland and Deputy Attorney General Lisa Monaco have made several overlapping efforts in this area. Among other things, they have tried to redouble the Justice Department’s efforts to prosecute pandemic-related fraud, but the time that has elapsed has made identifying the wrongdoers and building those cases even harder. They also created a national cryptocurrency enforcement team and made changes to department policy designed to increase incentives for companies to disclose criminal misconduct on the part of their employees and to cooperate with federal investigators. Much of this is laudable, but there is clearly more work to be done.
There are many possible proposals here. Over the years, prosecutors have tried creating initiatives designed to target specific financial crimes, such as spoofing in financial markets — rapidly placing and canceling fake orders to move the market price for things like gold futures. I participated in the effort to curb spoofing at banks while working as a prosecutor, but for the most part, it only sucked limited department resources and ended up benefiting the billionaire and millionaire owners of the algorithmic trading firms that had been losing large sums to traders engaged in the practice. Task forces are of no use, either. We have had more than enough of those.
Instead, we should be learning from the example set in Mr. Bankman-Fried’s trial. The Justice Department’s strategy for success appears to have been simple: resources, including bodies, and focus. If you followed the government’s court filings closely, as many as five prosecutors seemed to be working on the case at a time — which, based on my experience, is an unusually large number, even for a complex white-collar case.
Of course, that effort is not remotely replicable on a larger scale. Mr. Bankman-Fried’s case was highly unusual, in large part because he became remarkably prominent in political circles and among certain members of the media. But we should be able to make progress against more of the people pulling similar scams far outside public view, often in foreign countries that are not particularly friendly to U.S. extradition requests. We can hire more qualified investigators and prosecutors in Washington to pursue these cases.
Policy and organizational changes within the Justice Department may help a bit, but just as important (if not far more so), we also need to ensure that U.S. attorney’s offices and F.B.I. field offices throughout the country — particularly those in key areas such as New York, Chicago and Los Angeles — have the people and the technology to pursue this problem. Ideally, Congress would do its part by significantly increasing funding for hiring more prosecutors, investigators and support staff members and by committing to this effort as a yearslong national priority.
There is a lot to be gained here. As I saw firsthand during my work, financial fraud can impose tangible and potentially dire economic suffering on people — particularly the elderly and the less affluent — and we have a moral obligation to our fellow Americans to try to prevent as much of that as we can. An even more serious push on the part of the Biden administration here might also pay political dividends, particularly given the president’s persistent challenges in persuading some segments of the public that he is doing everything that he can to alleviate Americans’ perceived financial hardships.
The trend lines here predate the Biden administration, so it would be unfair to blame it entirely for our current state of affairs. But the American people also cannot be oblivious to the scale of the problem or cavalier about the challenges that we face. The Bankman-Fried prosecution was an impressive victory in the fight against financial fraud, but we are still losing the war.
Ankush Khardori is a former federal prosecutor and legal analyst, a contributing editor for New York magazine and a contributing writer for Politico Magazine. This article originally appeared in The New York Times.
